The price war .. This is what awaits the oil market and the global economy after the crash

In the Russian version of the Carnegie Center, Ekaterina Krushevchenko said that the future of oil markets appears bleak until the end of this year, as the significant increase in production and the accompanying decline in demand due to the outbreak of the Corona virus will lead to increased competition between producers.

And the author considered that it is in the interest of global markets that oil prices are not high or low, as they need stability and clarity of vision, which will not happen this year.

She added that some producers will not be able to continue production, in light of the decline in crude prices following the collapse of the agreement to cut production between OPEC and major producers, led by Russia.

She added that the economy and global demand for oil will need some time to recover from the effects of the outbreak of the Corona virus, which represents one of the biggest mysterious questions in 2020.

The writer explained that with the beginning of next April, all oil producing countries will be in a solution of their commitment to production quotas, after the collapse of the agreement between OPEC led by Saudi Arabia and major producers led by Russia.

She pointed out that oil prices have fallen by about 30% this morning, Monday 9 March, with the opening of stock exchanges, at a time when Saudi Arabia has already started selling oil at a reduction of 6 or 7 dollars per barrel, and officially announced a huge increase in production to reach 12 million barrels per day. , Which means the start of the price war.

Display explosion
The writer explains that because of the expiry of the obligations that were bringing together the countries of "OPEC Plus", an explosion in production will occur in the coming months.

It pointed out that the highest level of production at the end of 2018 was 43.06 million barrels per day, and it was reduced in January 2020 by two million barrels, to reach 41.06 million.

The writer said that the "OPEC Plus" countries can produce additional quantities of oil up to 3.4 million barrels of crude oil per day, and Russia's share in it may be about 300 thousand barrels.

The author added that other countries will increase production, such as the United States, Guyana, Norway, Brazil and Canada.

In the worst cases, she added, if all countries refrain from reducing their exports, global production will increase by more than 6 million barrels per day.

"For those who follow the oil markets, this is the worst time when the agreement to cut production that was in effect between OPEC Plus countries can be terminated, as panic has gripped the economies of the world due to the outbreak of the Corona virus and slowing growth," she said.

Everyone will suffer
The writer says that a drop in oil prices to $ 30 a barrel is expected during the second quarter of 2020, which will have negative effects on the entire oil market.

She added that a low oil price would hit the shale oil sector strongly, and that new projects to extract oil at sea in countries outside the "OPEC Plus" group would suffer from difficulties despite the technical development and reducing costs.

The writer pointed out that the damage will affect the major oil exporting countries, because despite the low cost of extraction for them, the export earnings are very important to its budget, and therefore the calculation of the acceptable minimum price is not based on the cost of extraction but rather on the government trade budget.

And stresses that most of the budgets of oil-exporting countries do not bear the price of a barrel below the $ 45 barrier.

Mystery continues
If the price continues to drop for a long time, the author says, we will see a decline in investment in the oil industry.

It warns that these low prices may seem beneficial to consumers, but they do not contribute to encouraging the development of clean and alternative energies, as many environmental protection projects will be delayed, because high prices were what motivated countries to search for alternative energy sources.